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Xbox birthday signals death of 5-year console cycle

It's long been a truism in the video game industry that console manufacturers would come out with new models every five years or so. But five years into the current generation, there are no signs of a next-gen.

When the Xbox 360 turned 5 years old this week with no known successor on the horizon, and no new imminent PlayStation or Wii either, it may well have signaled the demise of one of the video game industry's most longstanding truisms.

Since at least the mid-1980s, major console makers have generally come out with new models every five years or so. For example, the Nintendo Entertainment System (NES) came out in 1985, followed by the Super NES in 1991, the Nintendo 64 in 1996, the GameCube in 2001, and the Wii in 2006. Sony put out the first PlayStation in 1995 and followed up with the PS2 in 2000 and the PS3 in 2006. And Microsoft introduced the original Xbox in 2001 and released the Xbox 360 in 2005.

The release by Microsoft of the Xbox 360 Slim--with more features and a lower price--could help the platform avoid replacement for a few more years. Microsoft

But now, with the Xbox 360 having turned five, and the PS3 and Nintendo's Wii both having just hit their fourth birthdays, many industry observers see the ongoing success of each of the three major platforms as evidence that neither Microsoft, Sony, nor Nintendo have any intentions of following up in the next year or so. And why should they? Consumers are still buying the machines by the hundreds of thousands each month, and ramped-up online initiatives are breathing new life into the systems.

"I've been saying since 2002," said Wedbush Morgan Securities analyst Michael Pachter, "that the generation [started] in 2005 might be our last one."

But why would the major console makers pass up the opportunity to make big new splashes with, say, an Xbox 720, a PlayStation 4, or a Wii 2?

To observers like Pachter, a lot of it has to do with the fact that with the current generation of consoles (often called the "next-gen"), each company found a way to maximize either the technology behind the devices, or the utility to a wide range of new gamers.

For example, while Nintendo's Wii didn't break new ground in its graphics capabilities, its innovative and intuitive Wii controller made it possible to design games that appealed to millions of people who had never considered themselves gamers in the past. And at the same time, with the Xbox 360 and the PS3, Microsoft and Sony created machines capable of game play of such high quality and graphics capabilities that some think there's not that much room, or need, to grow any times soon.

Indeed, to Pachter, game play on these devices has reached the point where the games are sophisticated enough, and the microprocessors are so sophisticated already that there's little reason to create a new generation any time soon.

Extending the consoles, and the franchises
One thing that's become clear during the past year or so is that the console makers have found a way to extend the life cycles of their current machines without having to come out with new models.

For Microsoft and Sony, that's manifested in the form of both cheaper and smaller versions of their current-gen consoles, as well as their innovative new motion-control systems, the Kinect and Move, respectively. By bringing in major new game play functionality with hot new accessories, the two companies have managed to build excitement amongst gamers, largely because of the promise of wide varieties of new games that can be produced for the Xbox and PS3.

After its early November release, Kinect quickly surpassed 1 million units sold and Microsoft expects to sell 5 million or more of the $150 device this year alone.

Microsoft's Kinect could help extend the life of the Xbox 360 platform for years to come, analysts say. Josh Lowensohn/CNET

"Kinect has certainly given Microsoft a mid-life kicker," said Dean Takahashi, the author of "The Xbox 360 Uncloaked." "I wasn't expecting that to happen, and really thought the company would have had to introduce a brand-new console by now...Kinect has extended this generation. For how long, I don't know. But as long as the Xbox business is growing and profitable, Microsoft doesn't have to rush a new console generation into the market."

For its part, Microsoft, which didn't even bother to publicize the Xbox 360's fifth anniversary, doesn't seem interested in playing the nostalgia game when it comes to industry traditions like coming out with new consoles every five years or so. "If you build a great piece of hardware that is designed with real game developers in mind and provides services that publishers, developers, and creators can use," said Albert Penello, the senior director of Xbox product management, "and you have a group of people who are passionate about gaming and the industry, like Xbox 360 does, you can outlive the cycle."

Sony, of course, has traditionally played the five-year game even as it has continued to profit from previous generations of its consoles. For example, the PlayStation 2, which has sold well over 140 million units worldwide since being released in 2000, is still for sale, and developers are still churning out new PS2 games. Yet the PS3 is now 4 years old. That's the same cycle the company went through previously with the original PlayStation and the early years of the PS2.

Indeed, Sony has long asserted that it believes its consoles have a 10-year life cycle--even as, in the past, it has followed the traditional five-year cycle.

"We at PlayStation have never subscribed to the concept that a console should last only five years," said Patrick Seybold, senior director of corporate communications for Sony Computer Entertainment. "Both the original PlayStation and PlayStation 2 had life cycles of more than 10 years, and PlayStation 3 will as well. The 10-year life cycle is a commitment we've made with every PlayStaiton consumer to date, and it's part of our philosophy that we provide hardware that will stand the test of time providing that fun experience you get from day one for the next decade."

Of course, with enmity between Sony and Microsoft always high, Seybold didn't pass up an opportunity to point out the shortcomings of the Xbox platform and to highlight the benefits of the PlayStation brand.

"Original Xbox owners were limited to the 5-year console, and Microsoft just stopped making the software and hardware at that 5-year [actually 4-year] mark," Seybold told CNET. "So those early-adopting Xbox consumers were quickly out of luck and new content, while PlayStation consumers know their investments in our consoles will bear fruit for years to come."

The PS3 looks to have at least five more years of life--and no PS4 is on the horizon. Sony

Naturally, Microsoft is eager to tout the ongoing life of the Xbox 360--and what its highly successful Xbox Live service, the 2010 release of the cheaper and more streamlined Xbox 360 Slim, and now Kinect bring to the party. "We've focused a lot of creativity and resources on continually enhancing the current generation, from massive Xbox Live updates to additional downloadable content to exciting entertainment partnerships to Kinect," said Penello. "Things like Kinect and [the Slim] absolutely extend the life cycle of Xbox 360. Kinect is our vision for fully immersive and interactive home entertainment that captures your body, voice, and imagination--transforming social gaming and entertainment forever.

Nintendo did not respond to a request for comment for this story.

Publishers are happy
One industry constituency that seems quite content with the ongoing life of the current generation of consoles is video game publishers.

And that's because, as M2 Research analyst Billy Pidgeon pointed out, the publishers are happy with the tens of millions of each of the three major consoles that are currently in consumers' hands.

"Publishers don't really want to reboot the cycle at this point," Pidgeon said, "because what they would be doing is shutting down the advantage they have with the large install base" of the three current consoles.

Pidgeon also said that in conversations he's had recently with game developers, there is no loud cry for a new generation of consoles. Perhaps the developers may see a ceiling for the Xbox sooner than the others, Pidgeon said, but "certainly they're not there yet with the PS3."

At the same time, Pidgeon thinks that even if developers find themselves approaching the limits of what's possible on current-generation consoles, they may choose to turn to PCs rather than call for next-generation hardware. As well, he suggested, the ever-improving online functionality of Xbox Live, the PlayStation Network, and the Wii's online services provide even longer life for the platforms. "I do think there's room to [grow on consoles]," Pidgeon said, "but eventually what you're going to see is more PC games, and more online capabilities."

From Pachter's perspective, the ability to put high-quality games cloud--via services like OnLive, Trion Worlds, and others that offer AAA-quality games entirely over the Internet--could mean that the basic concept of requiring gamers to buy sophisticated hardware goes by the wayside. "If the content [is in the cloud]," Pachter said, "why would I buy another box? So we really might not see another console."

And as the ability to play the highest quality games via cloud services advances, Pachter said, it might become harder and harder for the console manufacturers to sign the kind of exclusive development deals--such as Microsoft's deal with Epic Games to produce the Gears of War franchise solely for the Xbox--that get gamers salivating for one console or another. "If the cloud gets [powerful] enough," Pachter said, "it's going to be hard to sign guys like Epic to do exclusives like Gears of War."

In fact, added Pachter, the advancement of services like OnLive and others could mean that consumers find themselves saving several hundred dollars by not having to buy consoles. "That means you can buy eight or ten more games," Pachter said.

Still, that future may well not be close enough to forestall the next generation of console hardware.

Both Pachter and Pidgeon said it is feasible to imagine the next consoles coming along as early as 2012 or 2013, or possibly 2014, though they disagreed as to which company might be first. And Takahashi said he thinks the Kinect gives the Xbox 360 at least several more years of life. Nintendo, Takahashi said, might be the first manufacturer to move on to the next generation, though he suggested that a price cut might be enough to give the Wii a few more good years.

And notwithstanding the ongoing success Sony has had with the PS2 in the PS3 era, Pidgeon said that he doesn't expect the Xbox or the Wii to be first to be replaced. "It would be strategically difficult for either Microsoft or Nintendo to make such a move soon," Pidgeon said, "because they [still have] a huge market opportunity with the current install base. [And] generally, when you announce a next generation, the last gen goes off a cliff."